After days of frantic investor speculation and signs of growing central bank concern, the Federal Reserve is expected to raise official borrowing costs by 0.75 percentage points for the first time since 1994. The Fed meeting, with an announcement of interest rates expected at 7 p.m. The European Central Bank (ECB) held a special meeting on Wednesday to discuss falling bond prices in Italy, Spain, Portugal and Greece. Following market frustration over its failure to act in a scheduled meeting last week, the ECB’s board said it would take two steps to prevent the eurozone from fragmenting. The Frankfurt-based central bank has said it is developing a new support tool and will also direct cash out of debt ending in a € 1.7 trillion pandemic support program that recently ended in vulnerable eurozone countries. “The pandemic has left permanent vulnerabilities in the euro area economy, which in fact contribute to the uneven transmission of the normalization of our monetary policy to all jurisdictions,” the ECB said in a statement. The Bank of England is expected to raise the British interest rate on Thursday, after rising inflation in the UK to a 40-year high. Despite some speculations for an increase of 0.5 points, the Municipality expects an increase of 0.25 points to 1.25%. Fed Chairman Jerome Powell had previously ruled out a 0.75-point rise, but the central bank appears to have changed its mind after announcing higher-than-expected US inflation last week. The news that the US cost of living measurement had reached 8.6% – the highest in the last four decades – caused a sharp sell-off in bonds and stock prices, as investors feared action to combat the high inflation that leads to recession. The S&P 500 – a broad measure of the health of the US stock market – fell 20% from its peak in January, while the technology-rich Nasdaq index fell by a third. “Investors are now fully in line with the Fed forecast to rise 0.75 points today, following unexpected acceleration of inflation and inflation expectations in May and media reports suggesting the option is being debated by planners. “said analysts at ING bank. “Although a move of 75 basis points is uncertain, we doubt that such possible ‘leaks’ in the media are a coincidence and seem to us to be a (successful) attempt to adjust expectations during the period of blackout and prepare the markets for greater growth. ». The prospect of a larger-than-expected rise in US interest rates combined with weak growth in the UK pushed the pound to its two-year low against the US dollar. Subscribe to the daily Business Today email or follow the Guardian Business on Twitter at @BusinessDesk Neil Wilson, an analyst at Markets.com, said of the ECB move: “Given that a meeting was scheduled last week, it smells like panic and lack of control, but the market is happy to see it happen. “Shares of European banks rose and the euro also rallied, while Italian yields fell again.” Andrew Kenningham, chief economist for Europe at Capital Economics, said: “The news that the ECB’s Governing Body is meeting today shows that policymakers are taking the threat of regional returns more seriously than in the past. Thursday at their regular policy meeting. ” The Fed’s statement and Powell’s remarks at a press conference shortly thereafter will be considered to see if further sharp increases in US interest rates are possible. Some analysts believe the central bank will raise them by 0.75 points again next month.
